Cost of capital is

Question

Cost of capital is

Quizplus · Accepted Answer

Cost of capital refers to the required rate of return that must be earned on additional investment to keep the value of the firm unchanged. It is the minimum rate of return required by investors to compensate them for the risk they undertake by investing their money in the firm. It is calculated by taking the weighted average of the cost of equity and the cost of debt. The coupon rate of debt (A) is the interest rate on the debt issued by the firm. The minimum rate of return set by the board of directors (B) is a subjective decision and may not reflect the market rate of return. The average cost of the firm's assets (D) is not a correct definition of cost of capital.

Cost of Capital Is